President Biden and Speaker of the House Kevin McCarthy said on Monday that they have made progress in negotiating the debt ceiling – but remain far apart on some aspects of the deal as the country moves closer to a catastrophic default.
“We reiterated that there is no question of default, and the only way forward is through a good faith bilateral agreement,” Biden said in a statement released after Monday night’s meeting.
Biden added that the talks were “productive”, and McCarthy said: “I believe we can still get there.” McCarthy rejected White House proposals to reduce the deficit by raising taxes for wealthier Americans and closing loopholes for corporations.
The debt ceiling has existed since the beginning of the 20th century. For many decades, he was raised on a bipartisan basis with little drama. Because the government spends more than it receives, the debt ceiling must be raised periodically to allow it to borrow enough to cover its current liabilities.
But Republicans have said they won’t raise it this year without major cuts in government spending. Democrats noted that Republicans voted three times to raise the debt ceiling without preconditions under former President Trump.
Republicans in the House of Representatives passed the bill last month this would raise the debt ceiling, but it would also reduce many other social spending schemes. The GOP bill would introduce job requirements for Medicaid and SNAP (food stamp) recipients, cut tax incentives to fight climate change, cut back on Internal Revenue funding, and block Biden’s student debt relief plan.
Biden insisted he would not negotiate any spending cuts with GOP leaders until the debt ceiling was raised. Republicans, who have already passed the spending bill, say Biden’s refusal to discuss spending cuts has made it harder to break the impasse.
impending economic catastrophe
If the debt ceiling isn’t raised or the White House doesn’t find a workaround before the government runs out of funds, experts say it will lead to financial disaster. In March, he testified before CongressMoody’s Analytics chief economist Mark Zandi estimated that it would cost 7 million jobs, raise the unemployment rate to 8% and destroy a fifth of the value of the stock market – eliminating about $10 trillion in household wealth.
According to Bipartisan Policy Center estimatesif the government runs out of money, payments related to Social Security benefits, Medicaid, federal employee salaries, and Veterans and SNAP recipients’ benefits may be affected.
When will the government run out of money?
The so-called X-date — the date when the government will run out of money to pay its current liabilities — may be impossible to determine with certainty. Treasury Secretary Janet Yellen repeated on Monday that June 1 is the deadline for congressional agreement. Other estimates range from mid-June to August.
Republicans expressed skepticism about Yellen’s projection, with Representative Ralph Norman, R.S.C., he told CNN on Tuesday that “everyone knows (June 1 deadline) is bogus,” and Florida Congressman Matt Gaetz urges Yellen to show her work.
The Washington Post reported on Tuesday that the Treasury Department asked agencies whether there were options to defer payments to a later date.
The government is due to receive new tax revenues on June 15, which could push potential defaults to July. This would then open up the possibility of more ways to push X-Date further.
There’s also the possibility that Republicans and Democrats will agree to a short-term hike that will give them more time to reach a final deal.
Are there backup plans to reduce debt?
Some Democrats urged Biden to strongly consider using the 14th Amendment to circumvent the debt ceiling by declaring it unconstitutional. The theory is based on Clause 14 of the Amendment, which reads: “The validity of the United States government debt authorized by law, including debts incurred to pay pensions and bounties for merit in suppressing insurrection or rebellion, may not be questioned.”
Last week, a group of left-wing senators wrote to Biden saying that they “urgently (asked) you to prepare to exercise your powers under the 14th Amendment of the Constitution” in order to prevent a “global catastrophe.”
Dozens of members of the Congressional Progressive Caucus urged him to do the samewriting, “We appeal to you to stand firm in your resolve for Democrats to unite in defense of our core Democratic values and refuse to reward Republicans for their reckless refusal to raise the debt ceiling without preconditions.”
Earlier this month, Biden said he was “considering” that option, but he had concerns about the time it would take to go to court. And Yellen, who believes the debt ceiling should be lifted, has repeatedly said that taking advantage of the 14th Amendment is not a likely option.
Why Some Democrats Repent
Late last year when Democrats still controlled Congress as well as some lawmakers liberal experts he urged the party to raise or eliminate the debt ceiling before the GOP took control of the House in January. Republicans said they would link spending cuts to raising the debt ceiling during last year’s midterm elections.
Senator Tim Kaine, D-Va., told Politico last week that “If I could have done one thing differently” in the two years of the united Democratic government, it would have been the late 2022 debt hike, adding: “And I was saying it then … “hey, we have votes.”
The Democrats would have to convince Sens. Joe Manchin and Kyrsten Sinema to get 50 votes, but it may have been easier than negotiating with McCarthy.